Month: December 2019

Should I Borrow Money to Cover the Cost of a Deposit?

Should I Borrow Money to Cover the Cost of a Deposit?

If you want to buy or rent a property you will normally need to put together a deposit. For rental this will normally be a few months’ rent and perhaps a little more but for buying a home it can be up to 10% of the value of the property which is significantly more. Either way, you will need to get together the necessary money and there will be different options for doing it. You may feel that borrowing will be the only way, but there are other options too and it is good to find out about them all before deciding on which one to use.

Get a loan

Getting a loan can be a really fast way to get the money that you need. You will have to arrange it with a lender but it is unlikely to take that long and so you should have the money that you need pretty quickly. This means that you will be able to get on with moving into the property that you want without much time lost. However, loans do cost money of course. If you are having to make repayments on a loan as well as paying rent, you may find that the costs get too much for you. It is also worth noting that a loan may make it harder to get a mortgage. You mortgage lender will look at your financial records and see what outgoings you have to cover to ensure you have enough to repay the mortgage. If they see that you have a loan, they may look on this unfavourably and they may not be happy to lend to you as a result.

You will need to weigh up the pros and cons here. Getting a place quickly is obviously a big advantage but having the repayments to make could be difficult to manage. You will also be wise to calculate the cost of the loan and work out whether you really think that it is worth taking out considering how much it would cost. You could wait a while and try other methods to get the deposit together and these could be better suited to you.

Use savings

If you have some savings already then using these could be really sensible or if there are not enough, then using them towards the deposit. It can be hard using savings for things like this, especially if you have been saving towards something else. It is hard work to save money and it can also feel good knowing that you have some savings behind you. Therefore, using the money to pay for a deposit may feel like the wrong thing to do. You may feel that you need those savings to fall back on or you have worked so hard to get them that you are just not prepared to spend them. It is worth remembering though that savings do not accumulate very much interest and so they are not doing much for you financially. If you do use them you will be able to either get the property more quickly or avoid using a loan. Loan interest is always more expensive than savings interest and so it is better financially to use savings rather than getting a loan if you can. If you are saving for something specific then you will need to decide whether it is worth paying that extra money for. Calculate how much it will cost you to have a loan compared with keeping the savings and decide whether you think that it is worth it.

Save up

If you do not already have any savings, then you will have to save up if you want to pay a deposit and not use a loan. This will take time and you may find it rather frustrating that you will have to wait so long until you can move into the home you want while you save up. It is also very likely that the specific property that you are interested in will not be available by the time you have saved up the deposit. However, delaying may be advantageous as you may find an even better house becomes available. It will also help you to get into the habit of being disciplined with money and not spending everything that you earn, which is very useful for once you move into a new home as there will be lots to pay for and you will need to be really careful about how you prioritise your spending.

So, it is important to think hard about what to do in this situation. The decision that you make could have a significant impact on your future and so it should not be taken lightly. You need to think about this carefully and make sure that you have considered every option so that you know that you made the right decision.

Is it Wise to get a Loan Just Before Christmas?

Is it Wise to get a Loan Just Before Christmas?

Getting a loan is a big decision and it is important to make sure that it is made carefully and at the right time. You may feel that you need to borrow some money to help out with Christmas but is Christmas a good time for a loan?

The timing of a loan

When you take out a loan you normally have to start repaying it very quickly. This means that when you are considering the timing of a loan then you need to think about whether you will be able to do this. Regardless of the time of the year, you will always need to commit to making those repayments and so you need to think about whether this is possible. It is important to think about the long term, rather than just focussing on the short term. Many loans with no credit check will last longer than a year so there may be many Christmases to get through before it is paid off. 

Can I afford the repayments?

It is really important to think about whether you will be able to afford the repayments. This isn’t just the ones coming up very soon, but all of the loan repayments. There may be a lot to make and you need to think about whether you feel that you will be in the position to be able to make every one. It is therefore wise to find out exactly how much you will be expected to repay and when and then you can calculate if you can afford it. By looking at your bank statements, you will be able to work out how much money you normally have available and what you have to pay out for and this will enable you to be able to calculate whether this is something that you will be able to afford. It is important to also think about whether you will be able to afford everything else that you need to buy on top of those repayments.

Consider what might happen if interest rates go up as well and whether you think that you will still be bale to afford the repayments then. Also, if you have a change in your income and need to cut back on your spending, think about what you will do in order to make sure that you can still afford the loan. It might seem a bit negative, but it is wise to have a back up plan just in case of any problems.

Am I happy with the cost?

It is also good to be aware of how much the loan is costing you. It can be easy to actually forget that the loan will cost money as it is not bought in the same way as other things that we buy. The cost of the loan will be the addition of the interest as well as any administration and other charges. It may not be that easy to work it out but if you contact the customer service department of the lender, then you will be able to ask them about it. They should be able to do the calculations for you. If you are on a variable interest rate then there will be no guarantee that it will stay the same though. If the rates go up then you will pay more but if they go down, you will of course pay less. This can be very difficult to predict though and so it can be wise to make some estimations of whether it might go up or down in price to help you to calculate this. It is a good idea to assume the worst though and calculate if you might manage if rates go up. You will not have to worry about rates going down as you will be able to more easily manage the repayments if this happens.

Is the timing important?

It is a good idea to consider the timing a little bit and how long term the loan is will have a significant impact on how important this is. If you are getting a short-term loan, then it could be wise to avoid getting it at a time when you are likely to be short of money, such as Christmas. However, if you are taking out the loan for a long time, then you might find that this is not really relevant as you will be having to find the money for the repayments for a long time and so you may come across many times when you are a bit shorter of money. This is why it is so important to research first and come up with a plan of how you will manage if you are short of money. It might be that there are things that you can cut back on when needed or ways that you will be able to earn a bit of extra money from time to time. It is wise to have a think about it in advance of getting out the loan and then you will be well prepared in case of any eventuality.